In Bozeman’s industrial real estate market vacant properties are often commanding higher prices than leased ones. This shift from traditional valuation models—where leased properties usually generate higher returns due to stable income—is driven by high demand, limited land, and elevated construction costs.
Key Factors Behind the Demand for Vacant Industrial Properties
Limited Land and Rising Construction Costs: Bozeman’s industrial land remains scarce and expensive, and construction costs are consistently high due to labor shortages and the elevated costs of construction materials. For businesses needing immediate operational space, acquiring an existing vacant property avoids the expense and time involved in building from scratch.
Development Delays: The Bozeman industrial development pipeline is constrained, with few new projects expected to reach the market soon. This limited availability heightens competition for existing space, pushing up values for vacant properties that allow immediate occupancy.
Interest Rates and Their Impact on Financing: With recent decreases in interest rates, financing costs are slightly easing, potentially expanding the pool of buyers able to purchase existing buildings. This shift supports the demand for vacant properties, which offer a more financially viable alternative to the high upfront costs of new construction. For many businesses, purchasing an existing, vacant space is more attractive than navigating the complexities and cost burdens of a new build.
Flexibility and Immediate Occupancy: Vacant properties offer businesses flexibility to customize spaces without the complications of existing leases. For many companies, the ability to quickly adapt a space to their needs outweighs the stability offered by leasing, further enhancing the appeal of vacant properties in the Bozeman area.
Strategic Considerations for Property Owners
Property owners should carefully examine their situation when approaching lease expiration. In many cases, an existing lease may encumber the value of a property. In the current Bozeman market, industrial lease rates, combined with market CAP rates, typically don’t provide a valuation greater than that of a vacant building. However, the specifics can vary depending on factors like the length of the lease, the tenant’s creditworthiness, and the building’s features.
For property owners, this represents a critical decision point. A detailed property analysis can reveal whether maintaining a lease, seeking a new tenant, or selling the property vacant is the most financially advantageous route. SterlingCRE Advisors offers tailored insights to help property owners make informed choices based on current market conditions.
Contact SterlingCRE Advisors today to explore the best strategies for maximizing the value of your industrial property.
